But don’t let the title of this page 1 above the fold article mislead you — this is a far more nuanced and interesting discussion than you may guess from the header.

“Though America is sometimes loosely called an empire, it defies the imperial economic script described by Lenin (who called imperialism “the highest form of capitalism”). The U.S. doesn’t seek vassal states as outlets for surplus capital. In an anomaly for such a powerful nation, America sucks in money from abroad. With its large national debt and trade deficits, the U.S. binds not by lending but by borrowing and by importing.”

That’s a fascinating take; I’ve never quite seen it put exactly that way. NYU prof Niall Ferguson notes “If you are dependent on the willingness of others to hold your assets, there is a limit to how unilaterally you can act. [The US] status as a “hyper-debtor” makes this “hyper-power” oddly reliant on weaker partners.”

The Journal goes on to describe how PC peripheral maker Logitech exemplifies a “Microcosm of the Global Economy.” Note the economic benefits to each player — the U.S., U.S. Consumers, China, Chinese labor — in this discussion of U.S./Chinese bilateral trade arrangement:

“Logitech’s Suzhou parts warehouse is a microcosm of the global economy, and helps explain why China reinforces America’s role as ringmaster. Piled to the ceiling on blue metal shelves are boxes marked with the logos of foreign companies, from big U.S. multinationals to a small Belgian billiard company that makes trackballs.

One of Logitech’s big sellers is a wireless mouse called Wanda, which sells to American consumers for around $40. Of this, Logitech takes about $8, while distributors and retailers take $15. A further $14 goes to suppliers that provide Wanda’s parts: A Motorola Inc. plant in Malaysia makes the mouse’s chips, and America’s Agilent Technologies Inc. supplies the optical sensor. Even the solder comes from a U.S. company, Cookson Electronics, which has a factory in China’s Yunnan province next to Vietnam.

Marketing is led from Fremont, Calif., where a staff of 450 earns far more than 4,000 Chinese employed in Suzhou. China’s take from each mouse comes to a meager $3, which covers wages, power, transport and other overhead costs.

Other Chinese-made products rely less on U.S. components and use Japanese, Korean or Taiwanese parts instead. But, in many cases, the upshot for China is the same: Foreigners get the bulk of the money. They supply many of the parts, often own the plants in China that assemble them, and get a markup on sales abroad. Foreign companies account for more than three-quarters of China’s high-tech exports. The Chinese Ministry of Commerce’s ranking of “China’s” top 10 exporters includes two American companies — Motorola and hard-drive maker Seagate Technology.”

That makes the following chart somewhat incomplete. How would it look if the U.S. firms exporting from China to the U.S. were more accurately accounted for?

[1]

What makes the situation all the more dynamic — and potentially destabilizing — is America’s borrowing habits as a nation:

“The U.S. has been a net capital importer since at least the 1980s. This is in stark contrast to Britain at the height of its imperium before World War I, when the British had net foreign assets valued at 150% of their own GDP. America, though often described as Britain’s successor as the world’s dominant power, does the opposite. Recent figures from the Commerce Department’s Bureau of Economic Analysis show that foreign holdings of U.S. stocks, bonds and other assets exceeded America’s foreign assets to the tune of $2.3 trillion — or 22% of GDP — at the end of 2002.

“America is certainly a hegemon and may be occupying Iraq but, economically at least, it does the opposite of what Lenin described as imperialism,” says Angus Maddison, a British economist whose many books include a survey of the world economy over the last millennium.”

Consider how this impacts the overall financial situation, both here and abroad:

“China didn’t create this potentially unstable edifice, but it does, at least for the time being, help to keep it upright. China has loans outstanding to the U.S. government of more than $120 billion, in the form of Treasury debt that China owns. It holds probably that much again in Fannie Mae and other dollar-denominated debt securities.

Contrast that with what U.S. companies have invested in Chinese plants and equipment — not a direct comparison, by any means, but revealing nonetheless. This “foreign direct investment” stood at $10.2 billion at the end of 2002, according to the Bureau of Economic Analysis, about one-twenty-fifth the level of China’s U.S.-securities holdings. The Chinese government offers a much higher figure for U.S. investment in China but still far below the value of Chinese holdings of U.S. debt.”

What’s omitted from this discussion is long term security of U.S. Treasuries: They have long been regarded as the safest bet in an unsafe world. Any political discussion of deficits, trade imbalances, and world standing must also acknowledge that for more than a century, U.S. Treasuries have been considered the place where wealthy nations sheltered their cash in times of uncertainty. Even if that was due to a confluence of factors, including fortunate geography, one cannot overlook the “flight to safety” of Treasuries.

So China’s large holdings are not nearly as altruistic or even unexpected as implied. But what is a realistic concern is what might happen if the nature of our relationship with this giant Communist country ever dramatically changed:

America’s addiction to foreign money hands China and other potential adversaries a weapon, some influential voices warn. Among them is Aaron Friedberg of Princeton University, an authority on Britain’s imperial decline who is now a national security adviser to Vice President Dick Cheney. Mr. Friedberg wrote in a 2000 article in Commentary that China could one day dump its dollar assets to “trigger a run on the dollar, an increase in U.S. interest rates and perhaps a stock-market crash.”

The real danger to the U.S. is that as a nation we are ceding an enormous amount of authority over our future to the good wishes of a foreign power. Of course, if China were to ever harm the US economically, they would be only hurting themselves. (Of course, that was cold comfort to the frog[2]).

At least, that’s how it appears today. No one knows what both countries will look like in 25 years; Consider how China appeared a mere 25 years ago (Hard to imagine what a difference a 1/4 century makes amongst superpowers!)